For example: My priority is to pay my children’s college tuition, and getting out of debt will help me get there. My SMART goal is to pay off my $5,000 of credit card debt in 12 months by increasing my monthly payments from $120 to $420 per month. To do this I’ll make coffee at home (saving $100 per month), limit myself to eating out twice a month instead of four times (saving $100 per month), and cancel cable and rely on Netflix (saving $100 per month).

2. START SAVING, NO MATTER HOW LITTLE

Compound interest is the eighth wonder of the world. He who understands it, earns it.He who doesn’t ... pays it.— Albert Einstein (attributed)

Small efforts add up over time. Going from saving nothing to saving $20 a month may be one small step for man, but one giant leap for your financial habits. If you’re new to saving, the amount you save is less important than the act. Establish the habit and trust that saving is worth the effort. Eventually, aim to save at least 10% of your pre-tax income.

Here’s the key: the earlier you start saving, the faster your money will grow. This is the power of compounding. Suppose you save $1,000 which earns 2% of interest per year, or $20. The next year, you’ll earn 2% on $1,020. Your earnings generate more earnings. While this may not seem like much, these small amounts combine to create a snowball effect, exponentially increasing your future savings the earlier you begin saving.

Here’s an illustration of how much savings you’ll end up with if you save $500 per month until age 65, assuming a 6% return per year.

3. APPROACH DEBT WISELY

Interest on debt grows without rain.— Yiddish proverb

Nothing can wreck your finances quite like debt. Debt is easy to get into, hard to get out of, and carries long-term consequences. Get into these habits of wise debt management:

Credit cards: Always pay credit card balances off in full each month. Full stop.

Student loans: Before obtaining a student loan, be sure you understand monthly payment size and consider if you can cover these payments given expected income. Parents, the burden is on you to help your kids navigate this. As a rule of thumb, don’t borrow more over the course of the degree than the student’s reasonable first year salary out of school.

Mortgages: Don’t let the bank tell you what size mortgage payment you can afford. Keep mortgage payments and property taxes to a manageable level—my recommendation is no more than 25% of pre-tax monthly income. If you have other debts, I recommend keeping all debt payments (including property taxes and insurance) below about 30% of pre-tax monthly income. This works out to:

30% taxes

30% debt payments (includes property taxes and insurance)

20-30% expenses & giving

10-20% savings

Keep in mind, the specifics of your situation might call for a more conservative approach to debt.

4. KEEP SUFFICIENT CASH ON HAND

Most people don’t keep enough cash in the bank. Maintain a healthy checking account balance so you can comfortably pay off credit cards, cover bills, and make debt payments on a monthly basis.

When emergencies or unexpected expenses strike—or you simply overspend—cash in your checking and savings accounts is your line of defense against credit card debt. Credit card debt quickly compounds, as in the saving example above—except at a much higher rate. Envision $500 a month of debt snowballing on a credit card bearing 15% interest. It’s not pretty. If month-to-month credit card balances, balance transfers, or margin loans are a routine part of your life, you need to increase your cash in the bank.

Maintaining cash on hand as a rainy day fund—a minimum of 3 months of spending needs and debt payments—also provides financial peace of mind in the event of an emergency. A cash crunch creates an unnecessary stressor at the worst possible time. When you lose your job or need to travel to see family, you don’t need the added burden of wondering how you’re going to cover next month’s expenses.

5. MAX OUT THE MATCH!

Does your employer offer to match your 401(k) retirement contributions? If so, don’t leave free money on the table! Once you have sufficient cash on hand for emergencies and your monthly credit card balances, contribute enough to get the full match. If your financial circumstances preclude maxing out the match right now, contribute what you can and set calendar alerts to remind yourself to review your contributions. As soon as you’re able, max out the match.

Generally I see matching maxed out with contributions of 5-10% of gross income. If you have healthy cash savings and no debt, you should be saving at least 5-10% towards your long-term needs in retirement regardless of matching.

If your plan has above-average fees, that’s not ideal but still worth the free money. Talk to HR about why fees are so high. Ask for less expensive investment options and a plan with lower overall fees. Raise your fee concerns with fellow employees—the more people who ask for improved options, the more likely change will happen. Here’s a slightly dated but helpful overview of average 401k fees. You can also see if your plan is rated on BrightScope.

If your employer also offers an HSA match, take advantage of this as well.

BONUS: COVER BASIC INSURANCE NEEDS

I’ll be covering insurance in depth in an upcoming post, but for now ensure you have basic insurance needs covered:

Life insurance: This is essential for the vast majority of income-earners with a family. If your family relies on your income, you have debts that would fall to your family, or your family has significant financial goals that depend on your income (such as college or a down payment), then you need life insurance. I recommend term life insurance, as it’s the most affordable and straightforward.

Long-term disability: Everyone with an income should consider long-term disability insurance given the potential financial devastation of an unexpected disability. If your employer offers group long-term disability, opt in. If you’re the primary provider for your family, consider an individual policy as you may not be able to take your group coverage if you change jobs and your family might need more coverage than your group policy provides.

Renters insurance: Commonly overlooked by city-dwellers, renters insurance provides coverage for loss of personal property in the event of a fire or theft, among other occurrences. It’s very affordable and there’s just no excuse. Get it today! I always prefer an independent broker for quotes—ask your friends or advisor for a referral. This search tool through Chubb will help you find a local independent contact, otherwise you can check out PolicyGenius and Lemonade.